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Regional Initiative for Sustainable Energy

Regional Initiative for Sustainable Energy. Presentation of UEMOA funding arrangements for the implementation of its regional strategy to increase electricity supply . Problematics. Outline.

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Regional Initiative for Sustainable Energy

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  1. Regional Initiative for SustainableEnergy Presentation of UEMOA funding arrangements for the implementation of its regional strategy to increase electricity supply Mrs. Safietou DIALLO TechnicalAdvisor

  2. Problematics Outline • Funding SDEs becomes a strategic issue and the major concern for utilities, because of the importance and the size of required investments both for upgrading power generation and distribution infrastructure and covering the need to increase supply to meet sustained demand. They require significant resources at rather low interest rates to be amortized in the long term. • Operators from the African power sector face substantial production shortfalls, very significant increase in fuel costs due to the prohibitive cost of the oil barrel operators are faced with. This destabilizes their operations due to higher generation costs. The drop in the sector’s performance and profitability is reflected in the lack of continuity in the provision (important and recurring power cuts) and a sharp deterioration in service quality. Furthermore, the income regulation system, its enforcement and arbitrations rarely allow companies to restore their operating balance through prices.To break this vicious circle, “UEMOA” has defined a sustainable strategy to absorb the deficit of electricity in the short, medium and long term, through a dedicated funding mechanism and a 2010-2012 emergency component. Problematics Presentation of IRED Funding Arrangement and Key Actions : Targeted Objectives Diagrams Mechanisms UEMOA/IRED RegionalFund Mrs. Safietou DIALLO

  3. Presentation of IRED Outline • The power energy crisis prevailing in many EU countries worsened in 2008, resulting in a significant slowdown in economic activities in these countries. Given this situation, the Heads of States and Government of the UEMOA opted for a community approach to implement solutions. At their meeting, in March 2009, they decided to launch the Regional Initiative for Sustainable power (IRED). • IRED's vision is to enable all UEMOA citizens to have access to clean and low-cost energy, produced within an integrated and harmonized market across West Africa and based on a dynamic public-private partnership. The IRED consists of two components: an emergency component and a medium and long term component. • For financing the emergency program, the Electric Power Development Fund (FDE) was established, with an expected allocation of FCFA 500 billion, of which 250 billion constitute the contribution of Union institutions, the other half is to be sought from development partners. BCEAO’s additional contribution to the Fund amounts to 190 billion and that of the UEMOA Commission to 60 billion.The IRED is based on an institutional mechanism including the Steering Committee, the Board of FDE Donors and the Technical Monitoring Committee (STC). This mechanism is placed under the authority of the President of the UEMOA Commission, the Governor of the Central Bank and the President of UEMOA. Problematics Presentation of IRED Funding Arrangement and Key Actions : Targeted Objectives Diagrams Mechanisms UEMOA/IRED RegionalFund Mrs. Safietou DIALLO

  4. Presentation of IRED Outline To implement the IRED, there is an adequate funding mechanism consisting of two components: concessional and private equity funds. Problematics Presentation of IRED Funding Arrangement and Key Actions : Targeted Objectives Diagrams Mechanisms UEMOA/IRED RegionalFund • ConcessionalFund: • Amount: FCFA 500 billion Additional funds: Effective initial allocation of FCFA 250 billion (BCEAO, UEMOA, BOAD), the rest is expected to be provided by donors, concessional fund managers and bilateral cooperation agencies Electric Power DevelopmentFund(FDE) • Private Equity Fund • Targeted amount: FCFA 1,000 billion • FDE symbolic contribution : FCFA 15 billion « Infrastructure » Fund Mrs. Safietou DIALLO

  5. Funding Arrangement and Key Actions: Targeted Objectives Outline • Ensure the financial restructuring of utilities • Provide funding for the emergency plan • Attract significant private investment to fund strategies in the medium and long terms • Support the financing of the upgrading of national power systems Problematics Presentation of IRED Funding Arrangement and Key Actions : Targeted Objectives Diagrams Mechanisms UEMOA/IRED RegionalFund Strategic Objectives • Establishment of an Electric Power Development Fund • The Fund will grant concessional loans. • The Fund will finance the restructuring, the emergency program and projects in the medium and long term. • The Fund will provide an additional amount to the Investment Fund reaching up to 15% of its total value. • Establishment of an Investment Fund • The Fund will be provided with an additional contribution of up to 15% by the Electric Power Development Fund and of 85% by private partners. • The Fund will finance the restructuring, the emergency program and projects in the medium and long term . • Organization of a round table and a tour of development partners and donors with a view to financing the electricity sub-sector. Key Actions Mrs. Safietou DIALLO

  6. Global Diagram of the Funding Mechanism devoted to the UEMOA Power Sector Outline • Global diagram consists of a Power Sector Regional Development Fund, an Infrastructure Fund devoted to electricity and banking. Problematics Presentation of IRED Funding Arrangement and Key Actions : Targeted Objectives Diagrams Mechanisms UEMOA/IRED Regional Fund • Private partners • Local banks • Insurance companies • Donors • Retirement Funds • Oil companies • Others • Electric Power Development Fund • BCEAO, BOAD, UEMOA Commission • Donors 1.5% symbolic contribution 85% participation • Infrastructures funds • Participation of the Electric Power Development Funds • Additional contribution of community and international private sector (UEMOA is the project owner) Participations/loans and guarantees Restructuring/ Rehabilitation Emergency plan funding Medium, long-term project financing Mrs. Safietou DIALLO

  7. Detailed Diagram of the Electric Power Development Fund Outline • Electric Power DevelopmentFund • Community institutions: BCEAO, BOAD, UEMOA commission; • Donors. Problematics Presentation of IRED Funding Arrangement and Key Actions : Targeted Objectives Diagrams Mechanisms UEMOA/IRED RegionalFund • Concessional resource/grant allocation • Restructuring/ rehabilitation • Studies for investment projects • Diagnostic studies, financial audits… • Business plan development and implementation • Technical assistance for rehabilitation • Social Plans • Balance and equipment subsidies • Market resource allocation (Private equity funds) • Financing power generating projects • Emergency plan • Medium/long-term project financing Participation/loans and guarantees (concessional conditions ) Communities running power resource sharing projects CEB (Electric Community of Benin) OMVS – OMVG (Organisations for the Development of the Senegal and the Gambia Rivers) Other initiatives Solar power Funds ….. Electric Power Companies Utilities IPP(Privateproducers) Participation/loans and guarantees (in line withmarket conditions ) Mrs. Safietou DIALLO

  8. Privatepartners(marketresources) • Local banks • Insurancecompanies • Donors • Retirement fund • Oilcompanies • Others • Electric Power DevelopmentFund • (concessionalresources) • States, BCEAO, BOAD, UEMOA Commission • Donors 15 % contribution 85% contribution • IinvestmentFund • 15% contribution from Electric Power DevelopmentFund • 85% contribution fromprivatesector Participation/loans and guarantees National Power Companies, PPP Communities OMVS, OMVG, CEB, and other regional electric power pooling Thematicfunds (solar, biomass…) Detailed Diagram of the Infrastructure Fund Outline • The "Infrastructure“ Fund is a profit-seeking private equity fund and it mainly operates in line with market terms and conditions. Problematics Presentation of IRED Funding Arrangement and Key Actions : Targeted Objectives FDE and Infrastructure FundDiagrams Mechanisms UEMOA/IRED RegionalFund Mrs. Safietou DIALLO

  9. Funding Mechanism Devoted to the UEMOA Power Sector: Resources, Partnerships and Governance Rules Outline • Private partners provide both financial resources and corporate governance expertise. Their ambition will include encouraging the companies they invest in to seek listing at the Stock Exchange. Problematics Presentation of IRED Funding Arrangement and Key Actions : Targeted Objectives Diagrams Mechanisms UEMOA/IRED RegionalFund • Private partners (market resources ) • Local banks • Insurance companies • Donors • Retirement Funds • Oil companies • Others (the Public) • Governance rules • Participation in Board meetings . • Independent General Directorate. • Development of procedures and Management information Systems (MIS). • Preparation for listing (bringing accounting, profitability, solvency requirements as well as the remuneration of equity capital up to standards) • Market Resources • Restructuring • Emergency Plan • Medium/Long-term projects Participation/loans and guarantees Public utilities, IPP Communities OMVS,CEB, Liptako-Gourma etc. Thematicfunds (solar, biomass…) Mrs. Safietou DIALLO

  10. Outline Some rules of good governance required for the intervention of the Electric Power Development Fund in the programs for restructuring electricity operators Problematics Presentation of IRED Funding Arrangement and Key Actions : Targeted Objectives Diagrams Mechanisms UEMOA/IRED RegionalFund • A Board of Directors that is separate from public authorities comprising competent resources that are familiar with the sector . • A General Directorate working on the basis of a business plan (budget, goals ...) • Development of a sound Management Information System with reliable operating boards. • Establishment of Audit Committees and recruitment of an Internal Auditor under the supervision of the Board. • External auditing of accounts and financial statements by an independent auditor that is internationally recognized as competent. • Save the company’s income from losses (satisfactory recovery of receivables, development of prepayment and fraud control) • Ultimate preparation for listing at the Stock Exchange (bring accounting, profitability, solvency requirements as well as equity capital up to standards) Mrs. Safietou DIALLO

  11. Electric Power Development and Infrastructure Funds Intervention Mechanism Outline • Electric Power Development Fund (Concessional) Intervention Mechanisms • The Fund especially provides total or partial loan guarantee • It can provide grant or subsidy thresholds, if necessary • Exceptionally, the Fund may grant direct pre-funding to accelerate projects (when lenders have approved funding agreements that are delayed by administrative procedures) • The Fund will facilitate the settlement of arrears by providing payment and guaranteeing rescheduling agreements (debt restructuring) • The Fund will facilitate the development of special funding arrangements to ensure an efficient supply of fuel in case of absolute necessity • Investment Fund Intervention Mechanisms • The Fund will be the crucible for all the actions of electric power partnerships (including PPP with resources from the Energy Development Fund, the resources mobilized from various technical and financial partners, resources from bilateral and multilateral partners) • The Fund receives an additional contribution amounting to 15% from the Electric power Development Fund and 85% from the private partners • The Fund provides guarantees, senior loans, subordinated loans (quasi equity) • The Fund also intervenes in terms of participation in electric power companies, electricity companies created as part of electric communities such as OMVS, CEB, OMVG, and of thematic Funds as well • Private Partners Intervention Mechanisms • Private partners provide the necessary funding for heavy investments in the electricity subsector • The private sector enables to create an attractive business environment because utilities and electric communities shall meet good governance requirements and establish an attractive legal, fiscal and cyclical framework. Problematics Presentation of IRED Funding Arrangement and Key Actions : Targeted Objectives Diagrams Mechanisms UEMOA/IRED RegionalFund Mrs. Safietou DIALLO

  12. Funding Mechanism Devoted to the UEMOA Power Sector: Possible Funding Sources Outline • SomeFunding Sources Problematics Presentation of IRED Funding Arrangement and Key Actions : Targeted Objectives Diagrams Mechanisms UEMOA/IRED RegionalFund Different Possible Funding Sources • Mobilizing Immediately Available Resources in (one year) the UEMOA • Community Action Fund (F.A.C.) • Results (dividends payable) to BCEAO, balance brought forward, certain optional and available reserves • UEMOA Commission Structural Funds (PCS ...) • Short Term Resource Mobilization (1-2 years) • Uncommitted or unpaid WAPP credit lines (e.g. World Bank APL) • AFD, EIB, EDF, ADF, UEMOA: possibility to guarantee electricity-related bonds • Direct borrowing from traditional donors: ADB/ADF, EDF, IDB, BADEA, WB/IDA, IFC, USAID ... • Medium and Long Terms Resource Mobilization (3 to 12 years) • AFD, EIB, IFC: possibility to guarantee electricity-related bonds • Direct borrowing from ADB, EDF, WADB, IDB, etc.. • Regional Integration Aid Fund (RIAF): Fundingpossibilities for projects Mrs. Safietou DIALLO

  13. UEMOA/IRED REGIONAL FUND Outline • Assessment of Fund Activities • Status of available resources under its emergency component and IRED implementation status. • Initial contribution of 250 billion • As of October 25th 2011, the amount of available resources under FDEamounted to FCFA 138,789,608,392 • 4 countries have received 173 bns as part of the intervention of the Fund • Loan agreements that were signed, for most countries, since 22 January 2011 have not become effective. • Indeed, only loan agreements for Burkina Faso, Mali, Niger and Senegal have been formally approved by their parliament. • In addition, resource disbursement requirements are not yet removed. • This explains why, to date, no disbursements is made. Problematics Presentation of IRED Funding Arrangement and Key Actions : Targeted Objectives Diagrams Mechanisms UEMOA/IRED RegionalFund Mrs. Safietou DIALLO

  14. UEMOA/IRED RegionalFund Outline • IRED Implementation Status • The FDE has approved funding for projects up to a total amount of FCFA 173,586,000,000 broken down as follows by country : • Benin: 20 billion ; • Burkina: 20 billion ; • Côte d'Ivoire: 25 billion ; • Guinea-Bissau: 13,705 billion ; • Mali : 20 billion; • Niger: 20 billion ; • Senegal: 34,881 billion ; • Togo: 20 billion • The projects funded include emergency plans.Case of Senegal: 225 kV loop and containerized groups. Problematics Presentation of IRED Funding Arrangement and Key Actions : Targeted Objectives Diagrams Mechanisms UEMOA/IRED RegionalFund Mrs. Safietou DIALLO

  15. UEMOA/IRED RegionalFund Outline Problematics Presentation of IRED Funding Arrangement and Key Actions : Targeted Objectives Diagrams Mechanisms UEMOA/IRED RegionalFund • Actions planned to accelerate IRED implementation • Following consultations between the Governor of the Central Bank and the President of the UEMOA, held as a fringe meeting during the regular session of the Union’s Ministerial Council on September 12th 2011 in Dakar, the following due diligence is envisaged to speed up the implementation of the IRED: sending a UEMOA awareness mission to the States, with a view to step up the necessary loan disbursement procedures. • Re-launching external funds mobilization missions to development partners, in order to complement internal resources. • Accelerating procedures for the establishment the private equity fund focused on financing UEMOA energy infrastructure. Mrs. Safietou DIALLO

  16. UEMOA/IRED REGIONAL FUND Outline Lessons to learn Problematics Presentation of IRED Funding Arrangement and Key Actions : Targeted Objectives Diagrams Mechanisms UEMOA/IRED RegionalFund • a regional electric power market by increasing product supply • and • a provision of financial services taking advantage of the existence in the UEMOA zone of a convertible and strong single currency and a dynamic financial market. Mrs. Safietou DIALLO

  17. QUESTIONS Thank you for your attention Safietou DIALLO TECHNICAL ADVISOR SENELEC

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